How recruitment agencies can leverage their largest expense
APositive Workforce Finance Insights Powered by RIBreport
Want to achieve great productivity ratios even as your agency grows? Avoid these common pitfalls.
There’s no doubt the largest expense for staffing and recruitment agencies is the high cost of internal staff. And, new APositive insights powered by RIBreport reveals staff remuneration – including wages, rewards and bonus payments – can easily get out of control, especially as your team size grows.
We examine this by considering its impact on the leverage you have on your biggest expense.
Why? because smart operators know that building a great business is all about leverage, in all its shapes and forms.
Interestingly, new data finds in most instances, agencies which generate less than $1.4 of gross profit for every $1 in total team remuneration will be trading at a loss – or have minimal and volatile profits.
MANAGING INDUSTRY EXPECTATIONS
Traditionally, the staffing and recruitment industry has had a long-held expectation that if you’re paying a consultant $1, they should be able to generate three times that amount. And, FY17 Australian market research shows many smaller teams are still achieving this. However, the standard slides as team size grows.
AVOID THESE COMMON PITFALLS
It’s important to remember growing recruitment agencies can still achieve great productivity ratios, but some common pitfalls should be avoided.
High base salaries > The buoyant market can drive base salaries up, however try to avoid setting salaries too high initially. Instead create an appealing package based on realistic and agreed expectations with a guaranteed review six months down the line.
Early rewards > Don’t let bonus or reward schemes kick in too early. After all, you can’t afford to reward mediocrity.
Mindset matters > Bonus and reward schemes are often created with the income producer in mind first – to help make the role more appealing. However, you don’t want your business to accept a poor or below average outcome as a consequence. This is the wrong mindset. Instead, always look after your business returns as an equal priority.
Low expectations > Don’t be hoodwinked into thinking it’s not possible to achieve the magical ‘X 3’ return, even if your team is growing. Peer group comparisons show some larger firms are achieving this.
Combined desks > With a combined temp and perm desk you are most likely paying out too much commission on the temp or contracting desk. This is because quite often commission is paid across all gross profit at the same rate. If running a temp or contract desk you should expect a higher multiple of gross profit to remuneration because you wear a much higher risk and greater cost of service.
Staff churn > New employees can be costly as you often end up paying the wage, but struggle to cover their remuneration. Too much of this will destroy your returns and efficiencies. Avoid the churn and focus instead on ways to retain and improve your current team. It’s crazy to be adding more people to the team if it’s productivity is below industry averages! Also, it’s much easier to recruit new members into a high performing team.
Don’t forget, while your income producers might be achieving good results, too many back-of-house staff can be expensive and bring your remuneration returns tumbling down. And, finally, always check your budgets and remuneration schemes to ensure you’re not planning to make the situation worse, avoid future problems and try to leverage the high cost of staff remuneration to the benefit of your bottom line.
If you found this article interesting you might also like: What small and medium recruitment firms should know about operational costs.